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November 14, 2012

Baby Boomers Unprepared for Retirement, MFS Survey Finds

Insufficient savings and lack of a plan could spell trouble

(Photo: AP)

Even though they don’t really believe it will be there to provide them benefits throughouttheir retirement, many baby boomers are looking to Social Security to provide a major part of post-retirement income and have failed to save or plan adequately for a jobless future.

The latest MFS Investing Sentiment Survey, released Monday, indicated that over a third of boomers expect that Social Security will be “a major source of income during retirement.” However, only 25% believe that the system will be able to provide those benefits throughout their retirement, and 40% indicated that they were not at all confident that the money would be there.

So how do boomers plan to accommodate a lack of reliable benefits? Not, as you might expect, by saving more or by taking more risk in investments in the hope of a higher return, but by cutting back on spending, working part-time during retirement, and/or by postponing retirement.

Although most investors acknowledge the importance of savings and investments in paying for their retirement years, giving such funds top place among the means to fund retirement, boomers have not saved very much toward that goal. Among respondents with a median of eight years till retirement, only 12% had socked away $1 million or more in retirement accounts. The median savings level was far lower, at $314,000.

William Finnegan, senior managing director and head of Global Retail Marketing for MFS, said in a statement, "The survey findings point out a big disconnect between what investors say they plan to live on in retirement, and what they actually can count on for that income. Advisors have an opportunity to help their clients focus on solving for this critical shortfall before it's too late."

Among investors’ worries about impediments to a comfortable retirement were significant increases (10% or more) in health care costs, a deep recession, or a substantial cut in Social Security benefits. Asked to reveal their plan to cope with the first of the three, 63% said they had adjusted their lifestyle to remain in good health, while 44% who said they had saved more for emergencies.

"While pursuing a healthy lifestyle is laudable, it is far from a risk-free strategy in terms of the health of your retirement," Finnegan added. "People can lose their jobs or suffer catastrophic health issues at any time, regardless of their lifestyle. “Unanticipated events like these can obviously put a damper on their ability to control when they retire and their ability to work in retirement, if that had been their plan. When dealing with these issues of financial shortfalls in retirement, it's simply not realistic to say, 'Oh, I plan to work longer,' or 'I plan to stay healthy.'"